5 Ways to Get Rid of Christmas Debt
Once the tree has been taken down and decorations removed many Kiwi’s will be left with one gloomy reminder of the holiday season: their credit card statements. Here are 5 simple ways to help you get through this Christmas’s money hang over.
Tip 1. Know how much you owe. The first step is to collect up all your latest statements and tally up how much you owe. If your statement hasn’t yet been issued, check your online banking to get an idea of how much you’ve spent. Be sure to include all purchases made on payment plans and deferred credit including store cards, layby’s and HP’s.
Tip 2. Set a budget for the first quarter of the year. In order to pay down your Christmas debt aggressively, you need to work out how much excess cash you have every month to pay your card balances down. Set up a budget for at least the first three months of the new year, including how much money is coming in from salaries, investments and other income, and determine how much you need for non-negotiable expenses, such as mortgage, rent, car payments, groceries, utilities, daycare etc. The leftover money is disposable income and you should direct as much as possible toward paying down your credit cards. If you are not able to pay off the full amounts in January, pay as much as you can to reduce the interest on the remaining balance. Ignore the minimum balances listed on your statements as paying only that amount might leave you in debt until after next Christmas.
Tip 3. Consolidate debt. If you have multiple short term debts, consider consolidating them so it’s all in one easy to manage loan with one repayment. Find a lender offering competitive interest rates and low fees, this will make it easier to pay off faster and you will also eliminate being charged multiple account fees. If you own your own home, you could consolidate your debt into your mortgage meaning you’ll pay lower home loan interest rates. In this case, consider reducing the term of the consolidation loan otherwise a 30 year term will mean you pay back more in interest than the original loan itself!
Tip 4. Take advantage of low interest credit card. Consider transferring your credit card balance to a low interest or interest free credit card. The banks often run promotions and can be easily found with a google search. Set up an automatic payment onto the credit card as soon as you are paid for as much as you can afford so you are paying off the principal as fast as possible. Make sure you know how long the low interest period is for so you can aim to repay the debt before it reverts back to the standard interest rate. Also beware that the low rate is only applicable to the transferred balance, not new purchases. It could also be worthwhile cutting up the credit card so you aren’t tempted to use it!
Tip 5. Plan for next Christmas. Once your Christmas debt is under control, set aside some of the money you’ve been using to repay debt into a separate Christmas dedicated savings account. Work out how much you can afford each pay packet and set up an automatic transfer as soon as you get paid so you don’t have to worry about it. Come Christmas, you’ll enjoy the satisfaction of knowing the money is already there and you’ll be able to enjoy a stress free start to the new year!